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Market power and compliance with output quotas

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  • Hatcher, Aaron

Abstract

This paper examines the compliance behaviour of a dominant firm in an output quota market when the firm is able to exercise market power in both the quota and the output markets. Provided the firm has an initial quota endowment which is strictly positive, under some circumstances the firm may find it profitable to comply or even over-comply in its quota demand, even in the absence of enforcement. The results are compared to those found in the pollution permit literature for a firm with market dominance only in the permit market, to which some additional observations are also added concerning efficiency outcomes under non-compliance.

Suggested Citation

  • Hatcher, Aaron, 2012. "Market power and compliance with output quotas," Resource and Energy Economics, Elsevier, vol. 34(2), pages 255-269.
  • Handle: RePEc:eee:resene:v:34:y:2012:i:2:p:255-269
    DOI: 10.1016/j.reseneeco.2011.12.002
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    References listed on IDEAS

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    1. Claire Armstrong, 2008. "Using history dependence to design a dynamic tradeable quota system under market imperfections," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 39(4), pages 447-457, April.
    2. Anderson, Lee G., 1991. "A note on market power in ITQ fisheries," Journal of Environmental Economics and Management, Elsevier, vol. 21(3), pages 291-296, November.
    3. Carlos Chavez & Hugo Salgado, 2005. "Individual Transferable Quota Markets under Illegal Fishing," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 31(3), pages 303-324, July.
    4. Malueg, David A., 1990. "Welfare consequences of emission credit trading programs," Journal of Environmental Economics and Management, Elsevier, vol. 18(1), pages 66-77, January.
    5. Hagem, Cathrine & Westskog, Hege, 1998. "The Design of a Dynamic Tradeable Quota System under Market Imperfections," Journal of Environmental Economics and Management, Elsevier, vol. 36(1), pages 89-107, July.
    6. Misiolek, Walter S. & Elder, Harold W., 1989. "Exclusionary manipulation of markets for pollution rights," Journal of Environmental Economics and Management, Elsevier, vol. 16(2), pages 156-166, March.
    7. Eftichios Sartzetakis, 2004. "On the Efficiency of Competitive Markets for Emission Permits," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 27(1), pages 1-19, January.
    8. Eftichios Sartzetakis, 1997. "Tradeable emission permits regulations in the presence of imperfectly competitive product markets: Welfare implications," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 9(1), pages 65-81, January.
    9. Hatcher, Aaron, 2005. "Non-compliance and the quota price in an ITQ fishery," Journal of Environmental Economics and Management, Elsevier, vol. 49(3), pages 427-436, May.
    10. van Egteren, Henry & Weber, Marian, 1996. "Marketable Permits, Market Power, and Cheating," Journal of Environmental Economics and Management, Elsevier, vol. 30(2), pages 161-173, March.
    11. Malik, Arun S., 1990. "Markets for pollution control when firms are noncompliant," Journal of Environmental Economics and Management, Elsevier, vol. 18(2), pages 97-106, March.
    12. Malik, Arun S., 2002. "Further Results on Permit Markets with Market Power and Cheating," Journal of Environmental Economics and Management, Elsevier, vol. 44(3), pages 371-390, November.
    13. Robert W. Hahn, 1984. "Market Power and Transferable Property Rights," The Quarterly Journal of Economics, Oxford University Press, vol. 99(4), pages 753-765.
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    Citations

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    Cited by:

    1. Aaron Hatcher, 2014. "Implications of a Discard Ban in Multispecies Quota Fisheries," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 58(3), pages 463-472, July.
    2. Okumura, Yasunori, 2016. "Individual transferable quotas in Cournot competition," Economic Modelling, Elsevier, vol. 55(C), pages 315-321.
    3. Pauli Lappi, 2016. "The welfare ranking of prices and quantities under noncompliance," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 23(2), pages 269-288, April.
    4. repec:kap:itaxpf:v:24:y:2017:i:6:d:10.1007_s10797-017-9439-2 is not listed on IDEAS
    5. Aaron Hatcher & Linda Nøstbakken, 2015. "Quota Setting and Enforcement Choice in a Shared Fishery," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 61(4), pages 559-575, August.

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